Milk Prices, Costs of Nutrients, Margins and Comparison of Feedstuffs Prices

Alex Tebbe,Graduate Research Associate, Department of Animal Sciences,The Ohio State University

Milk Prices: Better But Not Best

In the last issue, the July Class III future price was projected to be $13.16/cwt and then jump to $15.07/cwt in August. The Class III price for July and August actually closed much higher than expected at $15.26/cwt and to $16.91/cwt, respectively. One year ago, the Class III milk price in Ohio was over $1/cwt higher at $16.33 for July and $0.64/ cwt lower at $16.27/cwt in August of 2015.  Currently, the Class III future price is set marginally lower at $16.63/cwt for September but higher than the $15.84/cwt of September 2015, when the market really started to take a turn for the worst.

Typical of when the kids go back to school, the price of milk has temporarily spiked to cover the demand. But this spike is only partially compensatory for the low average Class III price we have had for 2016 thus far ($14.16/cwt). To have an equivalent year to that of 2015 (2015 Class III average $15.80/cwt), the Class III milk price would have to average at least $20.80/cwt for October, November, and December, which is probably unrealistic. Overall, the milk prices of July and August are good in comparison to the previous 12 months but most definitely fall short of the 5 year average of all milk sold in Ohio ($18.46/cwt). The future of 2017, however, looks slightly brighter than this year according to the USDA price forecasts that predict all milk classes should average around $15.75 ± 1.00/cwt. This number, however, should be taken with extreme caution and be simply used as a rough estimate.

Nutrient Prices: Still The Good Side

In the last issue, the potential for a very volatile market forth coming was discussed. Now at the brink of the harvest, the future looks extremely good for the animal production industry as nutrient prices are expected to continue to fall. The majority of the Midwest is expected to have yet another good year in terms of bushels per acre but not in terms of dollars per bushel. This will be especially true for corn prices which are already approaching $3.00/bu and will likely go lower; prices we have not seen since the ethanol boom. The price of soybeans has also dropped 80¢/bu since the last issue when it temporarily spiked in price to $10.87/bu. Needless to say, now would be a good time to start locking in good prices on commodities and reformulating rations to enable feeding bargain feedstuffs long term.

In this issue, a new corn silage price for the year of $42.50/ton (35% dry matter) was calculated. This price is about $4/ton lower than last year’s and still a bargain compared to other ingredients. The calculated price is based upon the value of shelled corn rather than the nutritive value of the corn silage fed. The value, however, can vary considerably based on location (e.g. weather and growing conditions) and harvesting and storage conditions or practices, as well as the hybrid of corn planted. Thus, 75% confidence intervals are defined in Table 2 to reflect the real world variability in the nutritional value of corn silage and its range in net worth based on the price of other ingredients. This is especially true for the state of Ohio, as many areas did not experience the best growing conditions. Corn silage in these areas will likely differ in nutritive value (higher protein and lower energy) and also generate lower yields. Bottom line, regardless of variability, corn silage should be a no brainer for making up the majority of the forage component of rations for the upcoming year, but only if you have stored enough; running out of corn silage in July will be a huge financial burden. For more information about corn silage, I recommend readers look further into this issue of the Buckeye Dairy News for an article dedicated to the topic.

As in previous issues, these feed ingredients were appraised using the software program SESAME™ developed by Dr. St-Pierre at The Ohio State University to price the important nutrients in dairy rations, to estimate break-even prices of all commodities traded in Ohio, and to identify feedstuffs that currently are significantly underpriced as of September 20, 2016. Price estimates of net energy lactation (NEL, $/Mcal), metabolizable protein (MP, $/lb; MP is the sum of the digestible microbial protein and digestible rumen-undegradable protein of a feed), non-effective NDF (ne-NDF, $/lb), and effective NDF (e-NDF, $/lb) are reported in Table 1.  For MP, its current price ($0.52/lb) has increased slightly from July’s issue ($0.45/lb). The cost of NEL, e-NDF, and ne-NDF are nearly identical to last month at 10¢/lb, 8¢/lb, and -13¢/lb (i.e. feeds with a significant content of ne-NDF are priced at a discount), respectively.

To estimate the cost of production at these nutrient levels, the Cow-Jones Index with a cow milking 70 lb/day at 3.7% fat and 3.1% protein eating 50 lb/day of DM was used. In this model, the average income over nutrient costs (IONC) in July’s issue were estimated at $6.61/cwt for this 70 lb/day of milk and $7.04/cwt for a cow milking 85 lb/day and eating 56 lb of DM. These IONC were calculated under the combination of low nutrient prices and poor milk prices and are likely unprofitable. However, milk price has increased since, and in this issue, our 70 lb/day and 85 lb/day cows are estimated to be making much more per cwt of milk at $9.49/cwt and $9.94/cwt, respectively. Even though the current price of all milk is $2.50/cwt below the five-year average ($18.46/cwt) and may not seem high, the current nutrient prices are staying low driving the cost of production down. Taken all together and using this index, milking cows should no doubt be profitable again using these market prices. 

Table 1. Prices of nutrients for Ohio dairy farms, September 20, 2016.

Economic Value of Feeds

Results of the Sesame analysis for central Ohio on September 20, 2016 are presented in Table 2. Detailed results for all 27 feed commodities are reported. The lower and upper limits mark the 75% confidence range for the predicted (break-even) prices. Feeds in the “Appraisal Set” were those for which we didn’t have a price. One must remember that Sesame compares all commodities at one point in time, mid September in this case. Thus, the results do not imply that the bargain feeds are cheap on a historical basis.

Table 2. Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on Ohio dairy farms, September 20, 2016. 

For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the Sesame analysis. Feedstuffs that have gone up in price or in other words moved a column to the right since the last issue are red. Conversely, feedstuffs that have moved to the left (i.e. decreased in price) are green.

Table 3. Partitioning of feedstuffs, Ohio, September 20, 2016.

Bargains At Breakeven Overpriced
Bakery byproducts Alfalfa hay - 40% NDF Blood meal
Corn, ground, dry Beet pulp Canola meal
Corn silage Brewers grains, wet Citrus pulp
41% Cottonseed meal Gluten meal Fish meal
Distillers dried grains Hominy Molasses
Feather meal 48% Soybean meal Soybean hulls
Gluten feed Whole, roasted soybeans 44% Soybean meal
Meat meal Whole cottonseed Tallow
Soybean meal - expeller   Wheat bran
Wheat middlings    

As coined by Dr. St-Pierre, readers must be reminded that these results do not mean that you can formulate a balanced diet using only feeds in the “bargains” column. Feeds in the “bargains” column offer savings opportunity and their usage should be maximized within the limits of a properly balanced diet. In addition, prices within a commodity type can vary considerably because of quality differences as well as non-nutritional value added by some suppliers in the form of nutritional services, blending, terms of credit, etc. Also, there are reasons that a feed might be a very good fit in your feeding program while not appearing in the “bargains” column. For example, your nutritionist might be using some molasses in your rations for reasons other than its NEL and MP contents.


For those of you who use the 5-nutrient group values (i.e., replace metabolizable protein by rumen degradable protein and digestible rumen undegradable protein), see Table 4.

Table 4. Prices of nutrients using the 5-nutrient solution for
Ohio dairy farms, September 20, 2016.